I do not know much about banking or the housing market aside from what I learned when I bought my first and 2nd house. So perhaps someone will correct me if my logic is faulty.
I look at this as two separate issues. First the banks are responsible for making loans to people who they should have known could not pay them back and were getting in over their head. I think I saw a segment on the tube about banks making loans based on a persons word as to what they make or their assets. If I loan someone something, I will do my best to verify that they have the assets to cover their purchase. It seems to me that the banks for what ever reason did not care whether the loan could be covered. Perhaps they thought that the house would increase in value and they would be covered that way I do not know.
As for the purchaser, it seems that the threat of bankruptcy is not an adequate deterrent to defaulting on a loan. Companies like www.youwalk away.com (I think… this POS 8 yr old mac at work crashes when I go to the site) crop up and teach/help people walk away from their obligations.
IMO, the banks are the ones who bear a majority of the responsibility. They made loans to people that were way beyond the peoples ability to pay. Just because someone asks to borrow $100k or $200k does not mean they can afford to borrow that kind of money.
If I had my druthers, I'd say screw the lot of them. The banks can go stuff it along with the people they loaned the money too. The people who are defaulting can go live in apts and wait 7 or 8 years till the bankruptcy disappears. The banks can take the homes they just acquired and sell them at a loss. Unfortunately, when the bank sells the house at a loss, my house value goes down as a result. Banks are laying off people, construction companies are laying off people, contractors who supply construction are laying off people… and soon you have an avalanche of a cluster phuck.
Did I miss something?
garfield- This is how the system worked...
1.) Loans/Mortgages were originated at Banks, Etc..
2.) Those Mortgages were then packaged into CDO's (Collaterial Debt Obligations), on Wall Street.
3.) These CDO's were sliced/diced by Wall Street, into SIV's (Structured Investment Vehicles), and were assigned risk ratings AAA, BBB, BB- CCC, CC- etc..., to cater to investor "Risk Tolerance". The better the rating (re: AAA), the safer the investment, the lower the return. The lower the rating, the higher the return.
4.) These SIV's were then sold as "derivatives", (which means spread the risk), around the world to just about anybody, any institution, mutual fund, etc... that wished to invest in them, as part of their portfolio.
5.) The brokerages, Banks, etc.. that Sold these CDO's, bought INSURANCE (should the CDO go bad), through what is called a "Credit Default Swap" From the Monoline Insurers (Re: Ambac, MBIA) which have AAA ratings.
6.) If the CDO went bad, the Monoline Insurer would pay off on the bad investment (Thus protecting the Banks etc...
7.) When all these CDO's started going bad, (Due to job loss, bad underwriting, fraud, supbrime, CDO/ratings etc...) the Monoline Insurers didn't have enough $$$ to pay off on all the "insurance" claims from Banks, Brokerages, etc... from CDO's that were now worthless...
8.) Due to #7, The Monoline Insurers are now loosing their AAA rating, causing financial panic...
9.) The institutions that hold these CDO's, really don't know what the CDO's are worth, because they could go bad at anytime, (due to subprime % rate resets, Miss/Ratings etc...)
10.) This is causing causing banks, not to want to lend to one another (LIBOR) rate. Which is causing the credit Crunch, Which is causing all these Institutions like Merrill Lynch, Bank of America etc... to continue to write/down loses on these CDO's., which intern is causing a Banking Liquidity Crisis. (In other words, what you thought was an "asset", is not an "asset" at all but a liability. (re: Smoke & Mirrors)
This is a vicious cycle, and The Fed Chairmen, Ben Berneke, is printing money (Inflation), like it is going out of style, to keep the Financial System from collapsing- The problem here in lies, is this. The more money he prints, the less the U.S. dollar is worth, the less it buys, the less foreigniers are willing to support the U.S. debt, and our reckless consumption, because the U.S dollar is worth less, and their ROE (Return on Investment) is less due to Federal Reserve Interest rate "cuts", to keep the U.S. Economy from a Recession.
The best thing that could happen is those institutions that peddled this "toxic S**t" should be allowed to go under, out of business. The sad part is, The FED, wants to bail out it's buddies on Wall Street, While the rest of us "paupers" take it up the a**, and the CEO's of these companies walk away with millions in severance-
The Fed's, assumption is, regardless, of the Institutions wrong doing, they are to big to fail, and if they did fail, it would harm the U.S., much more than the current housing debacle. Now you know..... :blink:
